When the lender in a merchant cash advance or other loan uses the debtor’s accounts receivable account as collateral, it must submit a form called the UCC-1 to the local secretary of state’s office. This “perfects” the lien and makes it easier for the lender to seize the account or any other property securing the loan.
The UCC-1 form is short, usually only one page long. It is supposed to contain the terms of the cash advance or loan, though precise detail is not necessarily required. But there is one thing that the lender must get exactly right: the name of your business.
Dot every i and cross every t
This means that the advancer must write down the debtor business name exactly as it appears on its charter or other foundational documents. This includes seemingly “minor” details like punctuation, spacing, and capitalization. For UCC-1 purposes, “ABC Gizmos, Inc.” is not the same as “ABC Gizmos Inc.” or “Abc Gizmos, Inc.” Nor can the lender substitute the debtor’s DBA or trade name. Only the name exactly as written in the foundational documents will do. This is because the UCC-1 serves as notice to the public of the transaction for which the lien is required. Anybody, such as another potential lender, is considered to be on notice regarding whom they contact to find out more details — but only if the debtor’s name is recorded accurately.
While mistakes on the UCC-1 are not common, an error in your business’s name could change how you deal with a UCC lien. A conversation with an attorney who defends businesses against UCC liens should clarify your position.